9 Industries to Avoid When Starting a New Business

When starting a business, you want to be sure you’re seeking franchises in successful industries. The Small Business Administration reports that there are nine key industries to avoid. …

When starting a business, you want to be sure you’re seeking franchises in successful industries. The Small Business Administration reports that there are nine key industries to avoid. Read more about this in the full article by Blue MauMau.

Video shops, electronics stores, and bookstores have some of the highest failure rates, according to a report given to Blue MauMau by the Small Business Administration. The nine worst industries in which franchise establishments can be found include magazine distributors, electronics stores, video stores, and real estate offices.

No surprise there.

Neighborhood video stores have been disappearing, something Blockbuster franchisees have seen for themselves. The video store chain saw its establishments go from around 1,000 franchises in 2008 to 243, thanks to new technologies that have disrupted the old brick and mortar model. The franchisor is being auctioned off in bankruptcy proceedings in an effort to save the brand. Bookstores have franchisors too. Utah-based Beat the Bookstore sells college textbooks and Parable retails Christian books. Real estate firms franchise offices too. There’s Century 21, Coldwell Banker Real Estate, ERA Franchise Systems, Homevestors of America and more.

Here are nine industries in the worst 10 percent of the SBA list that have firms that franchise. Loan officers and business buyers realize that there are thousands of opportunities to buy and 1,082 other industries in the SBA list from which to choose, so why mess with those in the toughest categories?

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NAICS Code & Description

Disb #

Disb $

(x $1000)

Failure %

ChrgOff %

#1. 452112–Discount Department Stores91$9,46140.66%15.07%
#2. 424920–Book, Periodical, and Newspaper Merchant Wholesalers124$21,54130.65%2.55%
#3. 443112–Radio, Television, and Other Electronics Stores1,829$270,55626.79%6.13%
#4. 451211–Bookstores877$98,56626.34%6.01%
#5. 511140–Database and Directory Publishers236$31,28726.27%3.39%
#6. 448210–Shoe Stores1,143$130,09826.25%6.01%
#7. 512120–Motion Picture and Video Distribution131$11,13725.95%3.78%
#8. 448110–Men’s Clothing Stores564$68,00725.89%5.53%
#9. 531210–Offices of Real Estate Agents and Brokers4,064$613,97825.32%2.62%

The table explained

The Small Business Administration has provided to Blue MauMau its newest list of failure rates of small business loans from October 1, 2000 until September 30, 2009, sorted by NAICS industry codes. This is a collection of data from lendees on whether or not they pay back general SBA 7(a) and real estate and equipment 504 loans. Used by businesses to group businesses by economic activity type, NAICS is the North American Industry Classification System. For example, franchising is an industry, assigned NAICS code 533110.

The number of loan disbursements is listed, along with the disbursement figure, the percent that failed to pay back the loans, and the charge-off percentage (loss) to the lender. These figures help inform lenders and buyers on how well the small business establishments in an industry are financially able to pay back their small business loans. This is the list that the agency provides to loan officers of its most trusted lenders and banks throughout the country. The loans are guaranteed to be paid back to the lenders by the SBA.

This article was republished with permission frrom Blue MauMau.


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